For the week of June 27 to July 1
Aftershocks from the decision by the United Kingdom to leave the European Union gripped the market on Friday. The pound dropped to levels not seen against the US dollar since 1985. A global stock index fell by as much as 4.8 percent with stocks in Europe falling as much as seven percent on the day. Much of the pullback in markets on Friday was likely due to a slow buildup leading up the vote due to expectations of a “remain” vote which bookmakers saw having a 3 out of 4 chance of occurring. Central banks around the world assured markets they are able and prepared to react accordingly.
Oil prices took a serious hit on Friday as well, due in part to uncertainty about the future global outlook after the Brexit vote. Gold moved in the opposite direction as investors searched for safer assets. Prices for gold surged as much as eight percent through Friday. As would be expected, lower oil prices brought the value of the Canadian dollar down significantly against its US counterpart. The Loonie’s value fell by over two percent early in the day and settled closer to 1.8 percent down as the day progressed. However, Prime Minister Justin Trudeau reassured Canadians, “We are well positioned to weather global market uncertainty as we have done in the past.” Oil prices are currently down by 2.23 percent to $46.58/bbl. The Canadian dollar is currently trading at 1.3030 against the USD. Today’s expected range is 1.2980 – 1.3080.
The probability of rate hiked priced in by the market changed significantly for both the Bank of Canada and the Fed. In Canada, there is now a zero percent chance priced in of a rate hike until October (still only a 2.5 percent chance). In the United States, there is now a zero percent chance of a hike until November, when a 1.8 percent chance is being priced in by markets. Prior to the Brexit decision, there was a 10 percent chance of a hike in July, and up to a 31.6 percent chance in September.
Canada’s GDP figures will be released on Thursday, with expectations calling for growth of 0.1 percent on a month-over-month basis. GDP data will also be released in the United States this week along with Personal Income and Spending, and ISM Manufacturing.
Posted by Concentra Financial Markets